H. N. G. FERNANDO, J.—Puswella «. Commissioner of Income Tax 497
1958Present: H. N. 6. Fernando, J.N. PUSWELLA, Petitioner, and COMMISSIONER OF INCOME TAX,
8. 0. 463—Application for Revision in M. G. Avissawella, 23,690
Income tax—Default in payment—Proceedings for recovery before a Magistrate—“Show-ing cause ” against imposition of penal sanction—Income Tax Crdinance, s. 80.
In proceedings under section 80 of the Income Tax Ordinance for the recoveryof tax in default, a Magistrate would desist in special circumstances from im-posing the penal sanction. Such special circumstances are made out if it isshown that the default in payment was due to causes beyond the control of thedefaulter, and that there was no lack of good faith onhis part, and that at thetime when section 80 is invoked fthe defaulter has not the means to makepayment.
^APPLICATION to revise certain orders made by the Magistrate’sCourt, Avissawella.
B. Ohitty, Q.C., with K. Sivagunmathan and M. D. H. Jayatoardenerfor the Petitioner.
A. G. Alles, Deputy Solicitor-General, with R. 8. Wctnasundera, CrownCounsel, for the Respondent.
Cur. adv. wit.
December 5, 1958. H. N. G. Febnando, J.—
This is an application for the revision of an order made under Section80 of the Income Tax Ordinance, directing that a sum of Rs. 28,000 odd,being income tax in default, be deemed to be a fine imposed on thepetitioner and sentencing the petitioner to imprisonment in default ofpayment of the fine.
The petitioner is the widow of one D. S. Puswella who died on 23rdNovember, 1946. She applied on 10th February 1947 for letters ofadministration to the estate of her deceased husband. The statementof assets and liabilities furnished with her application show assets to thetotal value of about Rs. 550,000 and total liabilities of about Rs. 525,000.Of the liabilities, about Rs. 350,000 was due on mortgages and bonds,and the major portion of the balance was due on cheques which had beenissued by the deceased. Letters of Administration were issued to thepetitioner on 19th July 1947.
On 9th June 1947, notice of additional assessment was served on thepetitioner of tax due upon income of the deceased prior to his death.The amount of the assessment was for a sum of just over Rs. 50,000,and an appeal was preferred to the Commissioner against this assessment.
498 H. N. G. FERNANDO, J.—PusweUa v. Commissioner of Income Tax
In consequence of this appeal, the assessment was reduced by the Board(of Review ?), and a revised assessment for Rs. 39,000 was served on thepetitioner on 28th September 1949. Certain sums due under the re-vised assessment were subsequently recovered, and the amount ofRs. 28,000 odd, certified to be due from the petitioner represents the unpaidbalance ■plus penalty. The certificate is dated 3rd January 1957, andwas filed in the Magistrate’s Court on 4th January 1957. Meanwhile,the Administration proceedings were continued in the District Courtof Colombo, in the course of which all the properties of the deceasedwere sold, in most instances under decrees which had been obtained inactions against the estate. The Amended Final Account was filedabout October 1950 showing a balance against the Estate of aboutRs. 1000. On 2nd November 1950, the District Judge noted that“the estate is insolvent”, and subsequently, on 23rd November 1950the Testamentary proceedings were terminated and the petitioner’s bondas administratrix was discharged. It will be seen that proceedings for therecovery of tax from the petitioner by recourse to Section 80 of theOrdinance were only instituted six years later.
Mr. Chitty’s first argument for the petitioner was that the provisionsof Section 80 of the Ordinance can be utilised only against an individualdefaulter in his personal capacity, and not against a person, such as anexecutor or administrator, acting in his representative capacity. I do notpropose to set out the grounds of this argument, because I have come tothe conclusion that the petitioner must succeed even on the basis thatSection 80 can be utilised against an executrix. But it seems to me thatthe following considerations are of importance:—
Section 78 (1) declares that tax due upon an assessment are afirst charge on the assets of the defaulter, and Section 79 provides thatunpaid tax will normally be recovered by the seizure and sale of propertyof the defaulter either through an agent of the Commissioner or elsethrough a District Court.
It is reasonable to suppose that these provisions would applyeven where there is default on the part of an executor or administratorin paying tax due from him in his representative capacity, for elsethe Legislature must be taken to have been content to rely on volun-tary payments in the case of tax due from the estate of deceasedpersons. There is nothing in Section 78 or Section 79 to indicate anyintention to depart from the ordinary rule that civil debts due froma deceased person can be recovered by the seizure and sale of properlyforming part of his estate.
Having regard to Section 27, which declares that an executor“ shall be liable to all acts, matters and things as the deceased personif he were alive would be liable . . . . ”, the executor is liable topay the tax and would prima facie be a defaulter if he fails to makepayment. The only seeming difficulty is that Sections 78 and 79do not in terms exclude recourse to the personal assets of the defaulterin the case where he is an executor. But this difficulty would not ariseif the expression “ property of the defaulter ” occurringin those sections
H. N. (3. FERNANDO, J.—Puswdla v. Commissioner of Income Tax499
– is construed to mean “ property of the defaulting executor, in hiscapacity as such ”—a construction which is necessary having regardto the third Proviso to Section 27.
The clearest case for the application of Section 80 would be thatin which an “ individual" assessee fails, without excuse, to pay tax•despite his possession of the means to pay. If an executor, in thesame way, deliberately refuses to apply the assets of the estate in thepayment of tax, there is no reason why.the quasi-penal provisions' of Section 80 should not, in the absence of express provision to thecontrary, be available against him.
Assuming then, that Section 80 is applicable, the question is whetherthe petitioner has shown “ sufficient cause why further proceedings forthe recovery of tax should not be taken”, and I have first to determinewhat would be “ sufficient cause ” in the contemplation of the section.It is relevant in this connection to appreciate the purpose of Section 80•and that purpose in my opinion is only to compel payment of the taxhy imposing the sanction of imprisonment in default of payment.
There is an important difference between sub-section (3) of Section 79,which provides for recovery through a District Court, and the provisionsof Section 80. In the former case, the District Court performs a merelyministerial function, for the Court is bound to set the process of executionby seizure and sale in motion against the property of the defaulter and itis not open to a defaulter to show any cause against the issue of process:if the Commissioner can point to some property of the defaulter, execu-tion will follow automatically without the exercise by the Court of any•discretion as to whether process should or should not issue. On the■other hand, when the personal sanction provided for in Section 80 isinvoked by the Commissioner, the Magistrate has first to afford the•defaulter an opportunity to show cause why further proceedings, i.e.,the imposition of the personal sanction, should not be taken. In thelatter case then, the Magistrate has no power to impose the personalsanction if sufficient cause is shown.
The Legislature has in Section 80 (2) stated negatively the nature of■cause which cannot be shown:—“ any plea that the tax is excessive,Incorrect or under appeal shall not be entertained The argument forthe Crown has been that the only cause which a defaulter can show under•Section 80 is that tax has actually been paid. It seems that it is scarcelynecessary to provide for such an eventuality. The Section is concernedwith an attempt by a public officer to enforce payment on behalf of theCrown of an amount, the correctness of which cannot be challenged, andthe possibility of an attempt to recover what has already been paidwould be remote if not non-existent. (Indeed, if payment is the “ cause ”■contemplated in Section 80, there seems no reason why Section 79 (3)should not have provided for the same cause). When the Legislature, inempowering a Magistrate to deal with a defaulter in the same manner asif he had been convicted of a criminal offence, afforded an opportunity tothe defaulter to show cause why he should not be thus dealt with, the^Legislature must surely have intended that in special circumstances a
500 H. N. G. FERNANDO, J.—PusweUa v. Commissioner of Income Tax
Magistrate would desist from imposing the penal sanction. Such specialcircumstances are in my opinion made out if it is shown that the defaultin payment was due to causes beyond the control of the defaulter, andthat there was no lack of good faith on his part, and that at the time whenSection 80 is invoked the defaulter has not the means to make payment.The provision for cause to be shown negatives an intention to extract apound of flesh in every case of non-payment of income tax.
Indeed the Magistrate in the present case appears to have formed asimilar view, for he has examined the facts of the case before deciding to-make his order against the petitioner. His findings with respect tothis question may be summarised as follows:—
He holds that the petitioner admitted that she had used some ofthe income of the estate to buy certain properties for herself. It is-now conceded for the Crown that this finding is untenable.
He finds that the petitioner failed to make payments of the debts-of the estate in their proper order, or, in other words, that she undulypostponed the payment of the income tax until a stage was reachedwhen assets were not available to pay the tax.
He finds also that although a notice of assessment for Rs. 50,000odd was issued on 9th June 1947, the petitioner failed to inform theDistrict Court of this liability and thus deprived the Commissioner ofthe benefit of the priorities given by Section 78 of the Income TaxOrdinance.
It is convenient for me to deal together with the findings referred to at(2) and (3) above. Although the assessment was served on 9th June 1947,that assessment did not acquire finality until the termination of theproceedings and the service of the revised assessment on 28 th September1949. If there was a duty to acquaint the Court of the Commissioner’sclaim, that duty did not arise until this latter date, at which stage theappeal had been partially determined in favour of the petitioner. Amere glance at the Final Account suffices to show that there was a mul-titude of claims against the estate and it is impossible from the evidencewhich has been recorded and from the history of the testamentary pro-ceedings to reach the conclusion that in October 1949, there were stillmoneys available for the payment of the income tax. While it undoub-tedly appears that unsecured debts were paid out of the assets, it isclear that many of these claims had crystallised into actions againstthe estate and that payments were made to the credit of those actions.Moreover, although the revised assessment was for a sum of Rs. 39,000,about Rs. 16,000 was actually recovered by the Commissioner throughseizures or payments recorded in the Final Account, and the nett taxdeficit at the time the estate was closed amounted only to Rs. 23,000.Even if assets were available in October 1949, the fact that they werenot utilised to pay the income tax is attributable, not only to somedefault on the part of the petitioner, but equally to the failure of theCommissioner to take expeditious steps for recovery under Section 79of the Ordinance. The administration of the estate clearly involved thepetitioner in a large number of law suits and exposed her to numerous
Siriwardena «. Karunwratne
claims by various creditors of the estate, and if in su ch a situation she failedto take account of the fact that by October 1949, the Commissioner’sclaim had become a first charge in preference to unsecured debts, can it besaid that this failure amounted to a deliberate refusal on her part tosatisfy the claim ? Having regard to all the circumstances which I havejust mentioned, the petitioner succeeded in showing, firstly that theassets were insufficient to meet all the claims against the estate, andsecondly that the failure to pay the claim of the Commissioner was due tothe complexity and difficulty of the task of administration and to the factthat the claim became a legal liability at a stage when sufficient assetsto meet it were no longer available. There is nothing in the evidenceto show that she did not act in good faith. Moreover she derived nobenefit from the estate and no assets of the estate have been traced to herhands.
I would hold that the petitioner has shown sufficient cause why furtherproceedings should not be taken against her for recovery. In the. exerciseof my powers in revision I would quash the orders under Section 80made against the petitioner.
Application aMowed •
N. PUSWELLA, Petitoner, and COMMISSIONER OF INCOME TAX, Respondent